A rubber company in war-torn Liberia is enjoying a boost in production and is looking to expand operations thanks largely to IFC's trade finance program, which works closely with banks to promote and develop emerging markets' share of global trade.
With a trade finance product guaranteed by IFC, Liberia's Bank for Development and Investment (LBDI) enabled the Morris American Rubber Company to secure 400 jobs, import processing equipment from Malaysia and lay plans to open a factory to produce tire-grade rubber.
"Even though our company is one of the few that survived the war, prevailing conditions meant that we were unable to grow the business beyond just collecting rubber and supplying unprocessed product to tire manufacturers, such as Firestone," said Morris American General Manager Keith Jubah. "Now that there is stability and peace in the country, we are more confident about expanding our operations to include 'value addition' to the raw product,"
Liberian President Ellen Johnson Sirleaf called Morris American "a story of entrepreneurial success" when she visited it in early 2008.
BOOSTING AFRICA’S SHARE
IFC developed a trade finance program to boost African and other emerging markets' share of global trade. It provides banks with risk-guarantee coverage, enabling participating banks to offer loans and other lines of credit to companies seeking to engage in foreign trade.
The long-term goal of the program is to increase developing countries' share of global trade while supporting "south-south" flows of goods and services: countries in Africa cannot hope to grow their economies to their full potential and reduce poverty until they become fully engaged in world markets.
The trade finance program ultimately benefits African companies by creating partnerships with banks that might otherwise be unable to back large, trade-related transactions. IFC partial or risk guarantees are offered on a wide variety of instruments, including letters of credit, advance payment guarantees and pre-export financing.
In its first two years, the trade finance program included 29 issuing banks as participants in 15 African countries, including Burundi, Democratic Republic of Congo, Liberia, and Sierra Leone. It provided guarantees of $767 million for banks in Africa, supporting $1.2 billion worth of trade with the region.
LIBERIA’S "CASH ECONOMY"
Liberia is a good example of an African economy benefiting from IFC’s work in trade finance. The country has been shackled by its "cash economy" status, meaning credit and loan guarantees are hard to come by and big-ticket imports - such as processing equipment - a virtual impossibility to secure.
A company like Morris American, whose workers are mostly excombatants with little formal education, could not have imported expensive equipment without the letter of credit opened by the LBDI and backed by IFC. Many of the company's workers might have lost their jobs, leaving them with scarce employment options.
"The supplier in Malaysia, who had never worked with LBDI but knew of IFC, felt confident that they would receive payment because of this guarantee," said James Boker, LBDI vice president of credit. “Our client is now in possession of the machinery and can now continue with the plans to grow the business," he added.
In addition to delivering guarantees to financing, IFC has provided advice and training for staff in LBDI's new trade department and helped draft the department's operating procedures.
"Being part of IFC's Global Trade Finance Program has put us in a strong position to open letters of credit for our clients that can be accepted by larger commercial banks overseas that may not necessarily know LBDI," said Mathew Clarke of Liberia's Bank for Development and Investment. "These letters of credit are guaranteed by IFC, which gives the correspondent banks more confidence when dealing with us. IFC has provided advice and training on how to set up efficient processes and services for trade financing. This advice has helped us set-up a well functioning department with fully trained staff," he added.
For More Information Contact:
Jason Hopps
Communications Officer
Johannesburg, South Africa
JHopps@ifc.org
